The Solow Model and Soviet Growth Optimism
By Bryan Caplan
Economists who used PPP and production functions to predict that the
Soviet Union would outstrip the United States did so through the
following chain of reasoning:
Start with your production function: output Y as a function of
technological and organizational competence A, capital K, and labor L:
Y = AKαL1-α
The level of technological and organizational competence in the
Soviet Union is lower than in the United States–centrally planned
economies are inefficient, you know–but there is no strong tendency
for the proportional gap in A between the US and the USSR to widen: A
in the USSR will stay roughly the same fraction of A in the United
I’d like to see more textual evidence that Samuelson and company really thought this back in the sixties. I’m skeptical that they gave free markets much credit for higher A. In any case, an economist free of left-wing bias would have predicted that under capitalism, both the level and the rate of change of A would be higher for Schumpeterian reasons.
However, because the Soviet Union is a totalitarian state it is
very good at squashing consumption–at reducing consumption C as a
proportion of output Y to some near-subsistence minimum, and in
channelling the extra savings into boosting the capital stock.
Ha. An economist free of left-wing bias would have insisted that a lot of so-called Soviet “investment” was pure waste. Keeping millions of men in uniform and building nuclear bombs were not investments; neither were the endless Siberian prestige projects, Gulags, etc.
Thus in the long run even though the USSR has a lower A than the US does, it will have a much higher K.
And that much higher K will ultimately give it a larger economy: in the end quantity has a quality all its own.
No additional complaints here.
Bottom line: Even on Brad’s charitable interpretation of Samuelson and company, their argument was unreasonably sympathetic to the Soviets. There was never a point in Soviet history when a sensible economist would have seen communism as good for growth in any meaningful sense. (Especially in the Thirties when millions starved to death while Stalinists told the credulous West that the USSR was growing by leaps and bounds).